NEW YORK (AP) – Governments in the United Kingdom (UK) and the United States (US) took extraordinary steps to stop a potential banking crisis after the historic failure of Silicon Valley Bank, even as another major bank was shut down.
The UK Treasury and the Bank of England announced early yesterday that they had facilitated the sale of Silicon Valley Bank UK to HSBC, Europe’s biggest bank, ensuring the security of GBP6.7 billion (USD8.1 billion) of deposits.
British officials worked throughout the weekend to find a buyer for the UK subsidiary of the California-based bank. Its collapse was the second-largest bank failure in history.
US regulators also worked all weekend to try to find a buyer. Those efforts appeared to have failed on Sunday, but US officials assured all depositors that they could access all their money quickly.
The announcement came amid fears that the factors that caused the Santa Clara, California-based bank to fail could spread.
In a sign of how fast the financial bleeding was occurring, regulators announced that New York-based Signature Bank had also failed and was being seized on Sunday. At more than USD110 billion in assets, Signature Bank is the third-largest bank failure in US history.
The near-financial crisis left Asian markets jittery as trading began yesterday. Japan’s benchmark Nikkei 225 sank 1.6 per cent in morning trading, Australia’s S&P/ASX 200 lost 0.3 per cent and South Korea’s Kospi shed 0.4 per cent. But Hong Kong’s Hang Seng rose 1.4 per cent and the Shanghai Composite increased 0.3 per cent.
In an effort to shore up confidence in the banking system, the Treasury Department, Federal Reserve and FDIC said on Sunday that all Silicon Valley Bank clients would be protected and able to access their money. They also announced steps that are intended to protect the bank’s customers and prevent additional bank runs.
“This step will ensure that the US banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the agencies said in a joint statement.
Under the plan, depositors at Silicon Valley Bank and Signature Bank, including those whose holdings exceed the USD250,000 insurance limit, were able to access their money yesterday.
Also on Sunday, another beleaguered bank, First Republic Bank, announced that it had bolstered its financial health by gaining access to funding from the Fed and JPMorgan Chase.
In a separate announcement, the Fed late Sunday announced an expansive emergency lending programme that’s intended to prevent a wave of bank runs that would threaten the stability of the banking system and the economy as a whole. Fed officials characterised the programme as akin to what central banks have done for decades: Lend freely to the banking system so that customers would be confident that they could access their accounts whenever needed.
The lending facility will allow banks that need to raise cash to pay depositors to borrow that money from the Fed, rather than having to sell Treasuries and other securities to raise the money. Silicon Valley Bank had been forced to dump some of its Treasuries at at a loss to fund its customers’ withdrawals.
Under the Fed’s new programme, banks can post those securities as collateral and borrow from the emergency facility.
The Treasury has set aside USD25 billion to offset any losses incurred under the Fed’s emergency lending facility. Fed officials said, however, that they do not expect to have to use any of that money, given that the securities posted as collateral have a very low risk of default.
